Selling Short - How Does it Work

Selling Short - How Does it Work

Selling Short - How Does it Work

Like many home owners across the country you might find yourself not being able to sell by way of a conventional sale because the proceeds of the sale are not enough to cover your debt. Luckily there is something called a Short Sale...

First let's talk about what a "short sale" actually is

When a lender agrees to a short sale, it means that the lender is willing to accept less than what is owed to them. For example, if your loan payoff amount is $200,000, and you received an offer from a buyer for $150,000, you will have less than what you need to pay off the bank. You will be short $50,000 - hence the word "short" sale.

A short sale is also known as a "negotiated settlement," and it is a possible alternative to foreclosure for home owners that owe more than their home is currently worth. The transaction takes place between the homeowner and the lender. Depending on the homeowner's individual situation a short sale might offer some notable advantages to them.

How it works

When a property has lost its value to the point that it's worth less than the loan amount, lenders know that taking back the property through the foreclosure process might further increase their loss. Often, homeowners can convince their lender that taking less than what is owed to them now via a short sale is better than going through the foreclosure process and trying to sell the home later.

How long will it take?

Don't expect this to be a quick work; negotiating with lenders requires patience on all sides! It can be a lengthy waiting game of weeks, months and sometimes more than a year before an approval is granted. Don't believe anyone who assures you of a set time line because every situation is different and there's a lot involved; investors, bureaucratic regulations and insurers that must be handled and satisfied.

It's important to understand that if your house is going into foreclosure, requesting a short sale does not necessarily stop the process. However, though no-one can guarantee success, it won't hurt to try.

Tax consequences

Before you take action, consult your tax advisor to find out exactly what tax consequences you personally will face in a short sale or foreclosure situation.

Credit score implications

When it comes to your credit score, general consensus among credit repair specialist is that a short sale is more advantageous than foreclosure. This is a moving target and the answer changes every time you ask, be sure to inform yourself properly. It's up to you to weigh the consequences and decide what you are willing to live with as you go forward financially.

Conclusion

Selling buy way of a short sale offers a possible alternative to foreclosure, just be aware that a short sale is a bit of a moving target due to changing legislative policies. Do your due diligence and make sure you understand exactly what you are getting into.

Good luck!

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